The limited availability of minerals and metals could become a risk for the energy transition. The demand for many critical raw materials has doubled in recent years.
According to the International Energy Agency (IEA), the limited availability of minerals and metals for technologies such as solar cells or wind turbines is a serious challenge for the energy transition. “A combination of volatile price movements, supply chain congestion and geopolitical concerns has created a strong risk mix for a safe and rapid energy transition,” the IEA said in its annual report.
Market volume has doubled
According to the IEA, the demand for materials such as lithium, cobalt and nickel has increased significantly in recent years. The market for these raw materials, which are so important for the energy transition, reached a volume of 320 billion dollars last year and has doubled since 2017, the agency said. And this growth is likely to continue.
In response, investment in critical mineral development rose 30 percent last year, after growing 20 percent in 2021, according to the IEA. The surge in investment supports the affordability and pace of the energy transition, which depends heavily on the availability of critical minerals, the IEA writes.
More diversification required
The prices of most of these commodities had spiked in 2021 and early 2022 with the recovery after the corona shock and then the war in Ukraine. The situation calmed down somewhat in the second half of last year, but prices are still far above the usual level.
In its report, the IEA refers to insufficient diversification in processing. Geographical concentration continues to intensify, with China accounting for about half of the world’s newly planned lithium plants and almost 90 percent of nickel refinery projects in Indonesia. “Much more” needs to be done to ensure “safe and sustainable” supply chains, said IEA boss Fatih Birol.
Secure access to critical raw materials
The topic is particularly important against the background of the trade conflict between the USA and China. A few days ago, China announced export controls for two raw materials that are important for chip production. Further restrictions on raw material exports are possible.
The EU has long been planning to become more independent of China and other global supply chains and to mine important minerals and ores itself in the future. According to EU Commission President Ursula von der Leyen, the EU gets 98 percent of its supply of rare earths and 93 percent of its magnesium from China.
According to the EU Commission, the demand for critical raw materials will increase dramatically because they are “indispensable for ecological and digital change as well as in defense and space travel”. The aim is therefore to mine important minerals yourself and to increase recycling, as stated in the “European Raw Materials Act”.
China has cost advantages
The raw materials experts at Commerzbank state that China’s supremacy in the production of many important raw materials is not necessarily natural given the deposits there. Above all, China has a cost advantage in processing, emphasizes analyst Thu Lan Nguyen.
“In this respect, there would be a shortage problem in the short term if China were to further restrict its exports. In the long term, on the other hand, there would be more of a cost problem,” according to the expert’s assessment. “The energy component in particular, which plays an important role in the smelting of metals, is likely to be a cost driver, but higher wages are also likely to have a greater impact, depending on the production location,” says the analyst.